Danaher Corp (DHR) 2019 Q1 法說會逐字稿

Good morning.

My name is Laurie, and I'll be your conference facilitator today.

At this time, I would like to welcome everyone to Danaher Corporation's First Quarter 2019 Earnings Results Conference Call.

(Operator Instructions)

I would now turn the call over to Mr. Matt Gugino, Vice President of Investor Relations.

Mr. Gugino, you may begin your conference.

Thanks, Laurie.

Good morning, everyone, and thanks for joining us on the call.

With us today are Tom Joyce, our President and Chief Executive Officer; Matt McGrew, our Executive Vice President and Chief Financial Officer; and Dan Comas, our Executive Vice President.

I'd like to point out that our earnings release, the slide presentation supplementing today's call and the reconciliations and other information required by SEC Regulation G relating to any non-GAAP financial measures provided during the call are all available on the Investors section of our website, www.danaher.com under the heading Quarterly Earnings.

The audio portion of this call will be archived on the Investors section of our website later today under the heading Events & Presentations and will remain archived until our next quarterly call.

A replay of this call will also be available until April 25, 2019.

During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance.

The supplemental materials describe certain additional factors that impacted year-over-year performance.

Unless otherwise noted, all references in these remarks and supplemental materials to company-specific financial metrics relate to the continuing operation of the company and the first quarter of 2019, and all references to period-to-period increases or decreases in financial metrics are year-over-year.

We may also describe certain products and devices which have applications submitted and pending for certain regulatory approvals or are only available in certain markets.

During the call, we'll make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we believe or anticipate will or may occur in the future.

These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in our SEC filings, and actual results might differ materially from any forward-looking statements that we make today.

These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements, except as required by law.

With that, I'd like to turn the call over to Tom.

Thanks, Matt, and good morning, everyone.

We're off to a great start in 2019, delivering first quarter results ahead of our expectations.

We achieved 5.5% core revenue growth and believe we expanded our market-leading positions at a number of our operating companies through a combination of new product innovation and strong commercial execution.

Our growth was broad-based with all 4 segments delivering better-than-expected results, and we continue to see healthy conditions across our major end markets.

Combined with solid adjusted EPS growth and free cash flow generation, our performance is a testament to the power of the Danaher Business System.

Our team's focused execution has continued to accelerate our growth trajectory and drive long-term value-creation, and we're excited about what lies ahead for Danaher.

Over the past few years, you've heard us talk a lot about building a better, stronger Danaher.

An important and transformational component in that pursuit is our pending acquisition of the GE Biopharma business, which we announced on February 25.

GE Biopharma is a leading global player in the attractive biologics production market and will bring complementary strengths to our Life Sciences platform across the bioprocessing workflow.

We expect this acquisition will be accretive to Danaher on multiple levels and will further advance our evolution into a higher-growth, innovation-driven company.

We could not be more excited about this business, the team and what they'll bring to Danaher.

The transaction remains subject to regulatory approvals, and we're making good progress towards closing, which we continue to be -- which continues to be on track for the fourth quarter of this year.

Turning to our first quarter results.

Sales grew 4% to $4.9 billion driven by 5.5% core growth.

Acquisitions increased revenues by 2.5% while the impact of foreign currency translation decreased revenues by 4%.

Geographically, high-growth markets grew high-single digits, led by double-digit growth in China.

Across the developed markets, we saw mid-single-digit growth in the U.S. and low single-digit growth in Western Europe.

Gross margin for the first quarter was 55.7% and operating profit margin was 14.8%.

Core operating margin increased 40 basis points despite a meaningful foreign currency headwind from a stronger U.S. dollar year-on-year.

Excluding this foreign currency impact, core operating margin would have been up 90 basis points.

First quarter adjusted diluted net EPS was $1.07, representing 8% growth year-on-year.

Now let's take a more detailed look at our first quarter results across the portfolio.

In Life Sciences, reported revenue was up 10% and core revenue grew 7%.

Reported operating profit margin was up 60 basis points to 19% with core margins increasing by 100 basis points.

Beckman Life Sciences core revenue was up double digits, making this the business' seventh consecutive quarter of high single digit or better core revenue growth.

Broad-based strength across most major regions and product lines was led by double-digit growth in flow cytometry and centrifugation.

And we believe the team's combination of high-quality innovation plus commercial execution continue to drive market share gains across the business.

Leica Microsystems achieved high single-digit core revenue growth.

Strength across North America and China was driven by demand in Life Science research as we continue to benefit from new product introductions.

Most recently, Leica launched the THUNDER imaging systems, a new class of wide-field instruments designed specifically for high-speed, high-quality imaging of 3D biology.

Scientists use this imaging technology to study organisms, tissue sections and advanced cell cultures for use in microbiology, neuroscience and cancer research.

Core revenue at SCIEX was up low single digits, with good performance in pharmaceutical, academic and applied markets partially offset by the impact of a tough comparison in our North American clinical business, which was up meaningfully last year.

Pall's core revenue increased at a high single-digit rate with growth across all major geography.

Pall Industrial was up mid-single digits, led by aerospace and process and industrial.

And we continue to see solid order trends within both businesses.

Double-digit core revenue growth in Pall Life Sciences was driven by our biotech business, particularly single-use technologies where we're seeing robust demand for our iCELLis bioreactor system in gene therapy applications.

The iCELLis provides excellent cell growth conditions for adherent cells, which are used to produce gene therapies, and it is the most widely used cell-adherent bioreactor on the market today.

iCELLis was recently highlighted at the INTERPHEX bioproduction trade show, along with a number of Pall's other market-leading bioprocessing innovations.

Moving to Diagnostics.

Reported revenue grew 1% with core revenue growth of 5%.

Reported operating margin decreased to 15.2% with both core and reported margins down 110 basis points.

This decline is predominantly attributable to the impact of foreign exchange rate movements.

At Beckman Diagnostics, core revenue was up mid-single digits as we saw continued improvement in North America and double-digit growth in China.

By product line, immunoassay and automation led the way, and hematology was seeing early signs of a positive impact from our new product introductions, including the DxH 520 and the DxH 900 analyzers for low- to high-volume settings.

Beckman recently received 510(k) clearance from the U.S. FDA for the DxH 520 and for the early sepsis indicator to be run on the DxH 900.

These additions in hematology are key examples of how we are enhancing our competitive position and accelerating our growth trajectory at Beckman.

Radiometer delivered high single-digit core revenue growth, led by performance in China, and we believe that we can continue to gain market share in North America.

During the quarter, Radiometer expanded their installed base globally across both our blood gas and AQT product lines.

We acquired Radiometer in early 2004, and the first quarter marked their 15th anniversary as part of Danaher.

During that time, the team has become a champion of DBS, helping to evolve the tools and processes that are shared across Danaher today.

As a result of this strong DBS execution and leadership, Radiometer has achieved tremendous results, including more than 1,000 basis points of operating profit margin expansion.

And over the last 5 years, the business has averaged high single-digit core revenue growth compared to low single-digit growth at the time of acquisition.

As one of our longest tenured operating companies today, Radiometer provides a terrific example of the long-term power of DBS.

Through a balanced approach implementing growth, lean and leadership tool, Radiometer has established a market-leading position that it continues to enhance today.

Leica Biosystems also had an excellent start to the year with core revenue up high single digits, led by advanced staining and core histology across the developed markets and in China.

At Cepheid, core growth was down slightly against the prior year comparison of over 40% growth, which was primarily driven by last year's severe flu season.

The team continued to expand Cepheid's market-leading installed base and is gaining momentum in North America with integrated delivery networks or IDNs.

Cepheid's cartridge-based molecular test is a uniquely well-suited solution for IDNs and their patients as it ensures consistent results across the network, whether the test is done in a large hospital lab or in a physician's office.

Turning now to our Dental segment.

Reported revenue declined 2% while core revenue grew 2.5%.

Reported operating profit margin declined to 7.3% with both core and reported margin down 30 basis points.

This decline primarily reflects the impact of ongoing investment spend focused on new product development.

We saw growth across our specialty and traditional product lines, and we remain encouraged by the stabilization we've seen in the North American end markets.

High-growth markets led the way geographically with China up double digits.

The Dental team continues to pursue one of its key strategic priorities, that is accelerating growth through innovation.

At 2 recent industry trade shows, IDS and Chicago Midwinter, we featured more than 20 new product and technologies from across the Dental platform, really the culmination of strategic investments in R&D and sales and marketing over the last few years.

At Nobel, Xeal and TiUltra are new implant surface technologies that enabled better bone and tissue integration while improving aesthetic results.

And at KaVo OP 3D is a scalable modular imaging system that provides clinicians with the flexibility to upgrade to the latest 3D imaging technology as they extend their capability and grow their practices.

So we're excited about this cadence of new product introductions and believe that this expanding portfolio of solutions will further distinguish our Dental business going forward.

We're also making good progress as we work to establish the platforms as a separate publicly traded company in the second half of this year.

Moving to our Environmental & Applied Solutions segment.

Reported revenue increased 3%, and core revenue was up 5.5%.

Reported operating margin increased 110 basis points to 23.2% with 140 basis points of core margin expansion due to outstanding execution across the segment.

In Product Identification, core revenue increased at a low single-digit rate.

Videojet core revenue was up mid-single digits, led by results in the developed markets.

Growth was broad-based across all major product lines with good traction for newer -- more newly introduced product like the remotely connected CIJ 1580 industrial inkjet printer.

Using DBS growth and innovation tools, Videojet has continuously expanded its product portfolio and getting higher-impact product to market faster.

This strong innovation execution differentiates Videojet's customer solutions and is a key driver of the team's consistent market outperformance.

Core revenue in our packaging business, which includes Esko and X-Rite, was flat but recent order trends are improving and we expect better performance as we move through the year.

Finally, turning to Water Quality.

Core revenue growth for the platform was up high single digits.

Hach core revenue increased at a mid-single-digit rates as end market demand remained healthy.

Europe and China led the way, and we continue to see solid order trend across both municipal and industrial applications globally.

Hach has consistently grown above the market over the last several years, in part driven by best-in-class commercial execution.

The team has aligned their go-to-market strategy to better meet customer's needs, and a great example of this is the expansion of Hach's e-commerce platform.

The team's double-digit e-commerce revenue growth in the quarter is a testament to how our innovative commercial strategy is delivering even greater value to customers.

At Trojan, core revenue increased by more than 20% as a result of a few large municipal projects in North America and in China.

The team sustained a solid customer win rate and continues to benefit from recent new product introductions like UVSigma and UVFlex.

Lastly, ChemTreat delivered mid-single-digit core revenue growth with the team's sales execution driving strong performance in North America.

By end market, chemical, metal processing and oil and gas led the way.

So to wrap up, we're very pleased with our first quarter results and look forward to building on this momentum as we move through the year.

Our team's commitment to continuous improvement helped us achieve our sixth consecutive quarter of 5.5% or better core revenue growth, high single-digit adjusted EPS growth and solid operating margin expansion.

We are initiating second quarter adjusted diluted net EPS guidance between $1.13 and $1.16, which assumes core growth of approximately 4% to 5%.

We now expect full year 2019 adjusted diluted net EPS to be in the range of $4.72 to $4.80, which reflects the dilutive impact of our recent equity offerings partially offset by our first quarter performance.

Looking ahead, 2019 will be a transformational year for Danaher.

We will be welcoming the GE Biopharma business to our Life Sciences platform and are establishing our Dental platform as a separate publicly traded company.

These are incredibly important portfolio moves that we expect will maximize value for our shareholders, customers and associates and help all of us realize greater potential.

With DBS as our foundation, we're well positioned to continue building on our growth trajectory and are excited about the opportunities to come.

Thanks, Tom.

That concludes our formal comments.

Laurie, we're now ready to take questions.

(Operator Instructions) Our first question comes from the line of Tycho Peterson of JPMorgan.

I want to start with China.

You guys continue to put up really good numbers there.

We've had some interesting data points lately.

One of your peers talked about destocking in the diagnostic side yesterday, and then there's been more noise on the crackdown on generics kind of impacting the pharma market.

So can you maybe, just looking ahead, talk a little bit about how your expectations for China have evolved?

And are you seeing any headwinds from either of those dynamics?

Thanks, Tycho.

China -- Tycho, we actually feel really good about where we are in China right now.

Double-digit growth across the businesses.

This, by the way, was the ninth consecutive quarter, and I think what's most encouraging is the growth that we're seeing is broad-based.

All 4 of our segments were up double digits in the first quarter.

So whether you look at Diagnostics or Life Sciences, the Dental platform certainly, Water Quality, everybody, I think, doing a nice job by driving the 4 segments to double digits in the quarter.

I think if we looked at anything where there might be a little bit of slowness, I think I'd probably point to PID, Product ID, over the past couple of quarters, but not in a sense of a meaningful step down.

And of course, PID is only about roughly 5% of our China revenues, so we feel very good about how we're positioned.

And these end markets, as you know well, are terrific end markets to be in, in China.

So over the span of time, 3 to -- last 3 to 4 years, we've been high single digits to low double digit kind of across the board.

Could we see a little bit of a softness in the second half?

I think that would only be a function right now related to the comps that we have, particularly in water.

I think Q -- middle of the year to back end of the year, our water business was up greater than 25%.

So I think that will be a tough comp.

But in terms of the fundamentals in China right now -- and I -- by the way, Tycho I was just there.

I was there 2 weeks ago and met with each one of our teams, spent some time with customers, talked with our, certainly, Dx customers in the hospital market as well as in bioprocessing, and the tone was really quite good.

So I think we feel good about the markets.

We feel good about our position in those markets.

You asked about generics.

We understand there's some policy move afoot there.

That has -- can have an impact on pricing.

At the same time, it may have an impact on access and volumes.

And generally, we benefit from expanding access and volumes.

But we're not -- that's not a dynamic that we're really in the crosshairs of.

We would be a second or third derivative of how we might actually benefit from an expansion of generics in that market.

So those will be our thoughts.

Yes.

And Tycho -- sorry, to your earlier question on the Diagnostics, we clearly are not seeing that dynamic from a destocking perspective.

Okay.

That's helpful.

And then on Beckman, you're continuing to put up great numbers there.

Obviously, you've had a couple of competitive launches.

One of your peers talked about, I think, winning 2/3 of competitive accounts in Europe at this point.

Can you maybe just talk about your confidence in holding share?

I know you're going to have a product refresh at some point, but just talk a little bit about chemistry and immunoassay and your ability to hold share there.

And then any metrics you can put on customer retention rates on the new hematology systems and your confidence for them to drive growth?

Sure, Tycho.

We continue to have an ever-improving cadence of new product introductions at Beckman.

Hematology was -- has been a big step forward, and that has been one of the areas that -- where we've had a challenge over the year since we acquired the business.

But we think we've stabilized that and are really are on the cusp of starting to improve our position there on a more material basis.

If you look at what -- the flow of new products that are coming on the core clinical chemistry and immunoassay side, we feel very good about those products, particularly how they will enhance our competitiveness in low- and mid-volume environments, and we'll see those really over the next year to 2 years.

Those will also come with enhanced menus.

There's been a couple of menu gaps over time.

Those will -- those new products, those new architectures will also bring along enhanced menus that'll improve our competitiveness.

So we feel very good about that.

We've always led the way in larger-volume environments, particularly with automation.

We've even stepped up our automation game recently with the introduction of the DxA line of automation equipment.

And so I think the combination of the product that have just come to the market more recently, the recent FDA approvals or clearances and those that are coming over the next year to 2 years, I think, we feel very good about improving the trajectory of Beckman from a core growth perspective.

And you see that in the numbers this quarter, saw it in the numbers last quarter.

If you look at the overall Diagnostic platform, of which Beckman obviously is a big part, now putting up 6% core growth in the past and in that 5% to 6% range now with a little bit more consistency, we feel very good about that.

And of course, that was against a very tough comp of a quarter ago.

Relative to metrics that we track, we do track retention and win rates very carefully across our businesses, Beckman included.

We don't publish those numbers, but I can tell you that we look at those numbers consistently every month and we see a continuing improving trend and have for some time now in both retention and win rates.

Okay.

That's great.

One very quick one from a group point before I hop off.

I promised Tusa I would ask.

On GE Biopharma, how much actual free cash flow is this business generating?

They're generating about $1 billion or so.

Your next question comes from the line of Derik De Bruin of Bank of America.

Just one quick question.

Did you see any sort of impact at all in the U.S. from the government shutdown earlier in the year?

No.

Well, we saw it in traffic, I mean, in Washington.

Out my window on Pennsylvania Avenue.

Everybody loves being able to get to work a lot faster.

But in all seriousness, no.

We can't point to anything in the shutdown that would be of any consequence at all.

Of course, we don't -- we have to say almost 0 -- it's probably almost 0 revenue that actually is directly attached to federal government activity.

At most, we are linked to funding when it comes -- from the federal government to NIH and then out from NIH into the broader life science market.

But in terms of any direct linkage to federal government spending, I would say none at all.

So can you elaborate a little bit more on the Diagnostics operating margin?

I mean all your businesses have essentially the same FX hit.

So what was it about your Diagnostic mix that took the core operating margin down in this quarter from FX, whereas the other segments, I mean, you saw good expansion in EAS and good expansion on Life Sciences?

Yes.

Well, there's a couple of factors going on there.

First of all, the FX and tariffs together.

And so when you take those kind of things, you -- FX and tariffs alone would bring those otherwise negative OMX numbers up to probably flat or maybe even a hair above that.

And then there's a little bit of a mix component that was going on there.

Obviously, Cepheid's operating leverage that we had last year coming off of greater than 40% core growth and then add to that Beckman Dx improving to mid-single digits at somewhat lower margins.

Obviously, you get the combination of those 2 factors: Cepheid against Beck Dx and then some targeted investment spend.

No question, we continue to ramp up our new product spending at Beck Dx as well as at Cepheid.

So I mean it's really a combination of those things.

But as we look forward, those -- certainly, the FX and tariff headwinds will continue a little bit in Q2, but as you look into the second half of the year, we'll see better OMX in the second half for sure.

Your next question comes from the line of Ross Muken of Evercore.

Congrats on a great quarter.

So maybe on the biopharma side, I mean, it feels like across a number of parts of the business, that end market, customer vertical remains quite robust.

It seems like Pall had quite good growth in the quarter on what's, I think, increasingly tough comps, so strong underlying.

I guess how are you thinking about sort of that end market broadly?

And then in terms of Pall specifically, in terms of sustaining kind of the elevated growth we've seen, do you feel like you've got pretty good visibility on that remaining kind of at these high single-digit, low double-digit kind of levels on the biotech side?

Sure.

Let's start with the overall market.

In general, the life science end markets remain very good.

We put up 7% core growth across our Life Science businesses in Q1, so another really strong quarter.

This is the fourth straight quarter of high single-digit growth across our Life Science businesses.

And we're making it happen organically through better innovation at each one of the businesses, more innovative new products launched on time, commercialized effectively and some tremendous investments in taking our products to market in each one of the businesses.

And that's, by the way, without IDT being core.

IDT goes core here in this quarter, and they're off to a terrific start and really beating our initial expectations.

So I think the combination of our good execution in fundamentally solid end markets sets up really well for continued performance in Life Sciences.

We continue to see good performance across the biopharma end market.

Our single-use technologies and the work that we're doing around continuous bioprocessing has garnered tremendous interest in the end market, and we're seeing sales continue to grow in those areas.

But applied markets have been solid.

Academic and research has been solid.

And even the smaller portions of sort of the industrially oriented life sciences market had been solid as well.

Geographically, China, as you heard me mention already, continues strong; U.S., a good quarter.

And Europe, I would say, is stable, but that's a market that we're watching closely.

And it's held up so far.

But there are always some concerns about what's going on in Europe at the moment.

So we're watching that carefully.

In terms of Pall, going a little deeper there, we have very good visibility to the product development pipelines of both large and small pharma customers and biotechs.

We continue to work those early-stage opportunities well.

And I think that's what bodes very well for continuing this high single-digit growth across Pall and the double-digit growth across our biotech business around SUT, continuous bioprocessing and really innovative products like the iCELLis bioreactor that I talked about in my prepared remarks.

So overall, that end market is a good place to be right now.

And maybe just on Dental.

Obviously, we've seen the margin, a little bit more investment there, but the growth, albeit an easier comp, kind of improved.

I guess how are you thinking in general about sort of the trajectory there and kind of what you put into the business and the sort of types of investments that are being made now ahead of sort of the potential separation?

Sure.

We're very encouraged actually to see the better top line performance that we put up and the underlying market stabilization that underpins some of that.

But our performance, we believe, beyond the market stabilization, has really been driven by the new product innovation that we continue to invest in as well as some of the investments around commercialization.

Some of those investments are really specific to things like our clear aligner program and our intraoral scanner and a number of new products that I mentioned earlier around Nobel.

And so these are -- we believe these are really important investments to be made strategically to set this business up for success.

If we look at the quarter, we saw sellout continue to be pretty encouraging, and that's pretty broad-based.

Even more encouraging, I think, around the traditional consumables and equipment, which had struggled in the past and where we had adjusted inventories with the channel in the past.

Now channel inventories are really in good shape.

So I mean, if you combine those investments with an improved cost structure that we've worked so hard to establish, and you've heard me talk about this before, about how we rationalized the cost structure around the overall footprint of the business over the last 3 to 4 years, I think we'll continue to see some incremental improvements in the growth rate and particularly in the second half around core operating margins.

So I think second straight quarter of solid low single-digit core growth and a little better than our expectations, and I think we're positioning the business well for later in the year.

And a quick one, Matt.

It looked like with the dilution from the equity deal, net of sort of the beat to the underlying operating guide, you actually came up by maybe $0.05 or so.

I guess if we think about the Q1 being fairly balanced, top and margin line, is there anything notable in terms of that delta, in terms of any of the segments?

Or is this more an organic versus OMX-type tweak?

Well, I think your frame of kind of talking about kind of -- for the full year, the change being kind of $0.09 of dilution from the equity offering kind of offset by that $0.04 beat.

That $0.04 beat is very operational.

It's pretty broad across most of our segments, I think came in better than we thought here.

So yes, that $0.05 reduction, I think, is -- the way to think about it is that it's $0.09 of dilution offset by $0.04 of operational beat here in the quarter.

Kind of results -- if you take a step back and kind of look at it, we're going to have EPS growth here for the full year, call it 6%, 7% now.

And effectively, we've got all the dilution from the equity issuance kind of behind us kind of in the second quarter.

Your next question comes from the line of Doug Schenkel of Cowen.

Maybe just building off of Ross' last question.

Q1 core growth was 5.5%, and you expect core growth of 4% to 5% in the second quarter against a tougher year-over-year comparison.

While Q3 has another tough comp, you get an extra selling day in Q4.

I understand why you might not want to provide a formal update to top line guidance given we're only 2 weeks into the second quarter and only around 3 months into the year.

That said, I haven't heard anything coming off of a strong Q1 that would suggest there's any change in positive trend or that there were any transitory issues that made Q1 uniquely strong.

So mathematically, it does seem like you're on track to exceed your original full year core revenue growth guidance of 4% by at least 50 basis points, if not a little bit more.

Is there anything I'm missing here?

No.

I mean I think, like you said, we are very encouraged by Q1.

The underlying market does remain good.

I don't think we would dispute that.

But kind of that being said, like we've talked about before, we are -- as you mentioned, we're 3 months in.

We typically like to kind of get through the second quarter here.

We'll kind of come back to folks in July, talk to the second half and the full year.

We'll kind of update everybody there.

We've done that the last couple of years, and that's worked out well.

So clearly, we feel good about where we're at, but we're going to kind of do that again and re-update everybody in July.

Okay.

That's helpful.

The second topic is SCIEX.

I was hoping to get a bit more color on performance in the quarter.

I believe you indicated growth moderated to low single-digit levels, if I heard that correctly.

So one way or the other, it'd be helpful to get a bit more color on product mix, geographic trends.

And recognizing you're a bit under-indexed to biopharma within this business relative to peers, it still would be good to hear how demand in that end market shaped up in the quarter.

And then looking ahead, I think you noted that you're up against a tough clinical comp within this business.

But that said, SCIEX grew at least high single digits every quarter last year.

I'm just wondering if you're expecting continued moderation in SCIEX growth over the balance of the year or if you expect this to pick up.

Thanks, Doug.

I think you got most of the facts.

We did have a tough comp overall.

We were high single digits, in fact, in the first quarter, a year ago.

And at this point, we're sort of coming off our fourth straight quarter, as you know, of high single-digit core growth.

It was, as I mentioned, largely driven by pretty meaningful declines in the clinical market, which is skewed towards North America.

And that was up meaningfully in the first quarter of '18.

So we can kind of do the direct comp to those -- to that particular end market.

The other end markets are generally pretty solid.

The pharma market, really pretty good.

If we look geographically, that market is pretty solid on a global basis.

The applied markets are good.

That's kind of a food testing-oriented market.

There's sort of a nascent market around cannabis testing where -- that we expect to grow over time.

And the academic market is pretty good.

So I think, aside from that challenging comp around clinical, we feel pretty good about where we sit relative to those end markets.

We have a broader footprint today with Phenomenex in separations consumables.

That business was up mid-single digits.

And our service business, which has always been an important part of both growth and margin expansion at SCIEX, continues to be good as well, generally tracking high single digit to low single digit.

So we feel good about how that business is positioned despite that tough comp, and I think we'll see some improvement over time.

Yes, Doug.

Like Tom just said, I mean, we're kind of expecting here kind of mid-single digit for the second quarter and the balance of the year here from an outlook perspective.

Your next question comes from the line of Dan Leonard of Deutsche Bank.

I will stick with a question on the tools business.

So first off, you mentioned strength in flow cytometry and centrifugation in Beckman tools.

Can you flag for me what are the applications driving that strength?

And I'm specifically wondering if there's any play here on some of the cell therapy that you're seeing strength in other parts of your platform.

Sure, Dan.

In terms of flow cytometry, the real strength of that business is around leukemia and lymphomas.

And I think the combination of our historical technologies with the more breakthrough technologies that's been associated with our acquisition just a few years ago of Xitogen that has now led to the innovation that's embedded in our CytoFLEX product line.

The combination of those strong application areas with more novel technologies have really helped to drive the flow cytometry business pretty consistently.

It's been a key growth driver for Beck LS for a number of quarters.

Centrifugation is a much broadly defined set of applications.

We play in a number of different segments from an end-market perspective and with an architecture that's generally oriented towards higher volumes, certainly above the table top kinds of volumes.

And -- but I wouldn't attribute centrifugation purely to any particular end market.

I think the team's done a nice job with innovation around centrifugation.

They've done a nice job in terms of positioning their commercial organization more effectively in terms of being able to take those products to market more broadly across that fragmented end market.

And I think those are the underlying sources of growth at Beck LS.

That's helpful.

And just a quick follow-up.

Can you offer us the Cepheid growth rate in the quarter excluding the flu comp?

And is it safe to assume that, that business gets back to double-digit growth into Q2 and beyond?

Yes.

So if you think about Cepheid excluding kind of flu in the high-growth markets, HBDC stuff, it was up double digits.

Your next question comes from the line of Erin Wright of Crédit Suisse.

So on the Dental side, do you think we're at an inflection point here?

Have you seen stabilization continuing quarter-to-date?

And can you break down the trends that you've seen across both North America and Rest of the World, what's driving more growth?

And if you could just give us an update on the time line of the spin, when we should hear more about your outlook for remainco business, et cetera.

Sure.

Thanks, Erin.

Erin, I don't know that I would call it an inflection point.

I think we've seen now over at least the last 2, maybe even 3 quarters, a progressing level of stabilization.

And we would measure that stabilization in terms of some things that caused some disruption in the past, a series of adjustments in the channel relative to exclusive relationships between manufacturers and distributors, some disruption among some channel sales forces, some inventory build that needed to be rectified.

All of those things really over -- that was really over a couple year period, I think, evolved to a point where we now have a much more stable end market, and we're seeing that both in terms of the alignment between our sell-in and sellout through the channel.

We look at it in terms of inventories.

We look at it by category to see how the traditional consumables and equipment are trending versus the more specialized products.

And so in general, I would say the overall trend in the market today could certainly be called far more stable than it was a year or 2 ago.

In terms of the broader trends that are happening in the market, I would say a continued move towards what would be broadly described as digital dentistry, the importance of imaging systems, and particularly -- and that's an area where our KaVo Kerr business is the real leader in imaging technologies and the linkage of those imaging technologies, through software, through treatment planning and treatment execution, with important novel innovation happening in term -- in the specialty areas.

Our implant business around Nobel continues to be a leader in those areas where digital dentistry really matters, where imaging leads to treatment planning, leads to novel implant systems and procedures that end up with greater levels of patient satisfaction.

And I think that's a broad-based trend, not just in North America but really on a global basis.

I think the other thing that's certainly noteworthy is the emerging middle class and the importance of dentistry in high-growth markets, China being one that we've talked a lot about being double digits.

But we're missing good growth across our Dental platform in a number of markets where an emerging middle class is putting greater demand on the practice of dentistry.

And then finally, on your question around the time line of the spin, we remain focused on the time line as we laid it out, which is to effect that spin late this year.

The intention is to launch an IPO of that business.

And that would largely be a business that would probably put 19.9% of that equity into the market, and we would retain the balance of that for a period of time.

And so there's been no change to those plans.

Okay.

Great.

And then this is a bigger-picture, kind of broader question.

Just there's been a lot of volatility in the market, primarily this week alone, just on reimbursement regulatory kind of concepts here in the U.S. And regardless of the actual likelihood of anything actually being implemented, how do you think about some of the opportunities, risk factors across your business when it comes to some of these concepts related to reimbursement pressures, drug pricing scrutiny, more recently PM operations?

And what are you seeing there?

And is there anything that you're more meaningfully concerned about from a reimbursement perspective that could impact your business or your customer base?

Thanks, Erin.

To cut right to a simple answer to your question about are we incrementally concerned about something around the dynamics that you just mentioned, the answer would be no.

Yes, there are a lot of things being bandied about around health care and reimbursement today and the Affordable Care Act.

Those, at the moment, are not having any material impact on us whatsoever or immaterial impact.

PAMA, we've seen occasional impact of that, but then, again, price pressures are standard operating procedure in the diagnostic market.

I think Erin, probably if you step back from our business for a moment and you think about what we do in diagnostics, providing diagnostic capabilities to hospitals in the central laboratory, in anatomical pathology, in acute care, in the emergency room, in molecular diagnostics for acutely ill patients around infectious disease.

Diagnostics today represents about 2% of cost of health care, broadly defined.

And yet, it informs well north of 60% of the decisions that are ultimately made in health care today.

So we play a vital role in the overall market but are a relatively small portion of the overall cost structure.

And while the factors that you mentioned are very important for us to attend to and keep in mind and be aware of any potential impact, today, there hasn't been any meaningful change in any of those in the recent quarter.

Your next question comes from the line of Brandon Couillard of Jefferies.

Tom, just to follow up on the Dental business.

Any chance you could tease out the performance of the traditional portfolio versus the specialty lines in the first quarter?

And then specifically, curious how the U.S. consumables business did in the period.

Sure, Brandon.

I think pretty solid.

As I mentioned, second straight quarter of low single-digit growth across the platform, so we feel pretty good about all that.

The orthodontics business was up mid-single digits, and we see really good performance across those businesses.

Nobel was up low single digits but on a tougher Q1 comp, but still mid-single digits on a 2-year stack basis and generally in line with what we've seen the last couple of years.

I think in both of these cases around specialty consumables, we're making significant investments in new product innovation, obviously around clear aligners and then the digital support through intraoral scanners that will really make a difference in our orthodontics business over time.

We have new Damon level -- Damon line products that have been introduced into the market as well.

And then at Nobel, these new surface technologies are exciting new technologies that are going to make a difference over time.

And so I think, today, those businesses are tracking reasonably well, but we're really encouraged by the new product innovations that are coming out in both of them.

North American traditional consumables and equipment remained good, low single-digit growth with a reasonably stable market.

The imaging business, the trends are good.

We're seeing mid-single-digit growth around imaging.

And when we look at sellout, the sellout looks pretty solid.

So we're continuing to manage sell-in to make sure the channel inventories are in line so we don't have that kind of disruption in the future.

And I think, overall, we feel pretty good about where the Dental platform sits today.

And maybe a follow-up for Matt.

EAS segment continues to be pretty solid, pricing up 1.5 points in the period.

Can we talk about the sustainability of that and where that's coming from?

And then secondly, when do you think pricing might improve somewhat in the Dental business given what's been, I guess, about 5 quarters of weakness on Dental pricing?

Yes.

That's -- I was going to say Dental has kind of been in that range in the last 4 or 5 quarters.

I'm not sure that we've got anything intentional that is driving that in Dental.

So that seems to kind of be the run rate of where they operate here today.

So I'm not sure there's kind of an inflection or change that's necessarily being planned for Dental.

As far as EAS goes, yes, they do a very nice job in pricing.

I think it's -- both those businesses have been around a little bit longer than some of our other businesses, and we talked about kind of some of the things that they're able to do, in passing, through some of the price that they get.

So I'm not sure there's anything from a trend perspective there that we'd change either.

I think we've seen price fare in that range for the last 4 or 5 quarters.

I'm not sure a whole lot that was new here in the quarter from a price perspective.

We have time for one more question.

Your final question will come from the line of Daniel Brennan of UBS.

Dan here.

I wanted to ask -- first, starting on GE.

If you could share some -- maybe some of the early customer feedback that you're receiving?

I mean should [it] learn if some of the customers look at the combined Danaher/GE offering possibly providing some share gains to be a possible broader solutions provider?

Sure, Daniel.

Thanks.

Our team has spent extensive time with customers.

We obviously share quite a number of customers, and we also have the opportunity in situations where we don't share customers to potentially bring a broader portfolio of solutions to that end market.

I was actually -- as I mentioned earlier in my comments, I was actually in China last week -- or 2 weeks ago and actually met with one of the key customers in the end market, and I think they represent sort of broadly a view, across that market, of real enthusiasm.

GE does a tremendous job in the China market as does our Pall business.

And I think the opportunity that those end customers seek today are for really innovative solutions where we can bring a broader perspective to the overall bioproduction workflow and work collaboratively with them to ensure that we meet not only their needs of today but the needs that they'll have as their capacity expands over time and as their -- as they evolve their processes more towards single-use technologies and more towards continuous bioprocessing capabilities.

They see the combination of the broad set of tools that we bring at Danaher, not just associated with Pall but across the broader portfolio and then inclusive of GE, as being something really exciting.

Great.

And then maybe just one final follow-up just on China.

Obviously, the growth had been tremendous there.

But with the tariff noise and the economy climbing lower, that's always a question mark, like how sustainable that is.

Maybe could you just characterize, amongst your 4 different businesses and all the different secular initiatives China has ongoing, like where do you see the biggest runway still for growth, dependent upon like where China is with some of their kind of secular kind of build-outs, if you will?

Sure.

Thanks, Daniel.

It's almost hard to choose because when we think about the investments that are being made in China in Diagnostics, in Life Sciences and in and around the environment, along with the dynamics I just mentioned a couple of minutes ago around an evolving middle class and the needs for advanced dentistry, there are important secular drivers in really, I would say, all 4 of those markets that I just mentioned.

And I think we feel that our leadership position in each one of those markets have served us well in the past.

We continue to enhance those leadership positions with innovative products, some of which are designed in China and many of which are made in China for the Chinese market, combined with continued investments in feet on the street and end market-facing associates who are continually looking for new and novel solutions to drive innovation for customers.

Those are just great end markets to be in.

And so I'm not sure I'd necessarily differentiate a great deal between the diagnostics, life sciences, the environmental and the dental end markets because I think they all represent important secular drivers that we'll -- we have benefited from in the past and we'll benefit from the future.

I'll now return the call to Matt Gugino for any additional or closing remarks.

Thanks, Laurie, and thanks, everyone, for joining us.

We're around all day for questions.

Thank you for participating in the Danaher Corporation's First Quarter 2019 Earnings Results Conference Call.

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